What Is a COVID-19 Surcharge? Business Experts Explain Why Small Businesses Charge Extra Tax

  • Small businesses may institute new COVID-19 surcharges as they reopen during the pandemic.
  • One restaurant in Missouri made national headlines after a customer posted a picture of their receipt online.
  • A small business expert explains why you might be seeing these charges on your bill.

    Small businesses are facing new challenges during the novel coronavirus pandemic, including large-scale stay-at-home orders, effectively upheaving their entire business model. But the most troubling challenge may actually lie ahead, as states are working to reopen non-essential businesses despite encouraging people to stay socially distant, changing the way that people shop and spend money in their communities.

    A few businesses have already thought of a new way to address these overnight changes to their livelihoods—a COVID-19 surcharge, which is usually added as a percentage to any bill or order. While some customers may not this it’s fair, this extra tax is most likely saving the business from new expenses related to the pandemic, or from shuttering their doors altogether.

    “It’s good that business owners are hyper aware right now—likely, it could be that there are supply chain issues, or having to increase their investments in other areas, like a much more rigorous sanitation process,” says Pamela Slim, a business coach and founder of local business advocacy group K’é Main Street Learning Lab in Arizona, where she’s assisting local entrepreneurs adjust to the new normal as the state reopened in early May. “Proprietors may come from the perspective of wanting to stay in business, but in some cases if they don’t have enough margin to be profitable—thus not passing rising costs to customers—then they’re not going to be able to stay in business.”

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    One restaurant in Missouri recently made national headlines for instituting their own COVID-19 surcharge, which caused a firestorm on social media after a customer posted a picture of their receipt. According to TODAY, the sushi restaurant encountered new demand in their supply chain, and rather than raise all of their prices across the menu, they added a 5% surcharge; some customers complained, while others said it was a “small price to pay” to support local businesses.

    Restaurants may be the first businesses in your area that feel economic pressures brought on by new needs to keep customers safe. But Slim says more businesses may soon institute upcharges to stay profitable—including salons, fitness centers, and most any retailer.

    Why is there a COVID-19 surcharge on my bill?

    Slim says there are a few scenarios that may explain why businesses need to add a percentage-based fee on your order’s total, including any essential services you may receive, from housekeeping to gardening. One takeaway you should know up front: Businesses aren’t trying to pull a fast one on you, Slim says. All are doing their best to keep their livelihoods afloat and their teams employed, especially through the next year or so until routines can resemble what they once were.

    If you are concerned about paying for an added fee on your bill, don’t hesitate to ask local businesses about their policy; Slim says most business owners are trying to be as transparent as possible with customers to explain why they need the extra revenue in the first place.

    Supply issues

    Nearly all businesses are feeling new pressures as the supply chain in America has been disrupted by lockdowns and increased demand in some sectors. Food prices and ingredient availability might be an issue for restaurants in particular. Just as you’ve seen headlines about a surge in grocery prices, your local eateries may be turning to smaller suppliers that are more expensive than large suppliers, which are being impacted greatly now.

    Investments in new procedures

    For most businesses, one bit of quick cleaning a day has turned into multiple hours of deep sanitation to keep customers safe during the coronavirus pandemic—especially in areas where close contact is unavoidable. “They may need to hire more people to come in and do huge cleanings every hour. That’s a whole different way of operating,” Slim explains. “Those costs can be increasing entirely.” This could apply to new costs like securing personal protective equipment for employees, or having to ship orders via the mail when they’ve traditionally offered in-store pick up only.

    A lack of foot traffic

    Profit margins are essential to businesses who can’t rely on corporate aid, and social distancing measures may have eliminated profit margins altogether because demand for certain services—physical therapy or hairstyling, as examples—has drastically dropped. If these businesses are allowed to reopen, they’ll either have to add a surcharge or raise their prices altogether to stay profitable, Slim explains. “In some cases, if they continue to stay open but don’t adjust their profit margins, they’ll be in worse shape than they were in during the shutdown. They’re delivering services under a profitable level,” she says.

    If you find yourself faced with a COVID-19 surcharge, remember that businesses are adapting to a new normal, Slim says. The extra cash could allow them to remain open to serve you again in the future rather than remain closed for good.

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